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pension SRI

Nutmeggers are a socially conscious bunch. That’s why you’ll find that socially responsible investing (SRI) is especially popular among them. In a series of blog posts, we’re asking why our team members chose this investment style.

Name: Joe Quinn

Job: Senior compliance analyst

Describe your role: I monitor business operations and provide guidance on compliance issues when the business needs it.

Products I have: Pension and ISA

Investment goal(s): For my pension it’s the standard thing: to provide an income in retirement. For my ISA, I’m aiming to build up a fund to use as a reserve in case of emergencies or other hardships. I may also dip into it for home improvements and things like that.

Why SRI? As a person, I try to think about the environmental impact of everything I do. I eat a mainly plant-based diet. I try to buy things that are sourced and made ethically. I don’t think investing should be any different. It would be a contradiction to try to live in a socially responsible way and not take the same attitude with your investments.

What are the key issues for you? The biggest one is carbon emissions because that’s the biggest issue facing us all. Climate change is changing our way of life like nothing in recent history and will continue to do so unless we make some huge changes. Water stress is also an important issue for me, it’s a topic that is quite niche and often overlooked due to its seemingly infinite supply. However, it’s the most precious resource on earth and one that we should treat with careful management.

Does SRI go far enough? SRI portfolios are weighted towards companies that score highly on environmental, social and governance (ESG) criteria and I think that’s enough to drive change. Yes, it is possible to go further, but if you had a portfolio that scored ten out of ten for SRI, for example, it would have to exclude so many companies and sectors that it would end up being a very niche portfolio, which wouldn’t be diversified at all. For most investors, you have to make a compromise. You need your portfolio to align with a global asset allocation mandate, otherwise you’d be exposing yourself to too much risk.

Do you have concerns about performance? I think it’s a bit of a misconception that SRI means a sacrifice in performance. If you believe the world will develop and become more socially responsible over time, then I would expect SRI performance naturally to beat that of non-SRI portfolios. The companies that are making positive changes ought to increase their revenue and draw more investment, and there’s a snowball effect. The recent market crisis is a good example. When the oil price plummeted, an SRI portfolio with a low concentration of oil-focused assets didn’t get harmed as much as a standard portfolio.

Do you have any other concerns about SRI? Not really. I’m aware that SRI investments have slightly higher fund costs, but that’s the price you have to pay until these exchange-traded funds (ETFs) become the mainstream. I’m expecting that year by year these fund costs will come down, as these funds become more popular and ETF providers have to drive competitive pricing. In terms of SRI data, yes there will always be a minority that try to exploit the reporting mechanisms, but I trust the fact that the vast majority of companies are doing things correctly and there is sufficient governance.

Would you recommend SRI? I’ve signed up six or seven people I know. They all hold a similar view to me. If you have the option to invest in a socially responsible portfolio, why wouldn’t you choose it? If you’re an investor you can earn £100 by referring a friend.

Anything else you’d like to share? Everyone who’s thinking about an SRI portfolio should read our white paper. It’s not an SRI utopia full of wind farms and solar panel companies, but it’s interesting to read how the portfolios are constructed and what’s taken into account.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance and forecasts are not reliable indicators of future performance. Tax treatment depends on your individual circumstances and may be subject to change in the future.